Marginal Propensity to Import (MPM) in Australia: 2025 Insights

The term Marginal Propensity to Import (MPM) might sound like an economics lecture throwback, but in 2025, it’s at the centre of Australia’s economic debates. With a shifting global trade landscape and changing consumer habits, understanding MPM is vital for everyone—from policymakers and business owners to households thinking about their next big purchase.

What Exactly Is Marginal Propensity to Import?

At its core, Marginal Propensity to Import measures how much of every extra dollar earned in Australia is spent on imports. If you receive a $100 pay rise and spend $15 of it on overseas goods or services, your personal MPM is 0.15. Nationally, the MPM represents the average across all households and businesses.

In 2025, Australia’s MPM is under scrutiny as the country balances inflation, a persistent current account deficit, and a strong dollar making imported goods more attractive. The Reserve Bank of Australia (RBA) and Treasury both monitor this metric closely because it influences:

• GDP growth: High MPM can dampen the multiplier effect of government stimulus.

• Trade balances: A surge in imports widens the trade deficit, impacting the Australian dollar.

• Household finances: With more spending on imports, less circulates through local businesses.

2025 Policy Updates and Economic Trends Affecting MPM

This year, several developments are shaping Australia’s MPM:

• GST on Low-Value Imports: The government’s 2025 budget extended GST to all online purchases from overseas, hoping to nudge consumers toward domestic options and lower the MPM.

• Interest Rate Movements: As the RBA holds rates steady to control inflation, the strong Australian dollar is making imports cheaper, potentially lifting MPM further.

• Supply Chain Shifts: Geopolitical tensions and a renewed focus on ‘sovereign manufacturing’ have led to targeted incentives for local producers, aiming to substitute imports with Australian-made goods.

Recent ABS data shows that in Q1 2025, Australia’s MPM edged up to 0.18 from 0.16 a year earlier, reflecting robust consumer demand for international brands and travel as borders remain fully open post-pandemic.

Real-World Examples: How MPM Impacts Australians

The MPM isn’t just an abstract number—it plays out in daily financial decisions and national outcomes:

• Technology Upgrades: Australian households buying new smartphones and laptops (mostly imported) add to the MPM. Local retailers may benefit, but the dollars ultimately flow offshore.

• Travel: With outbound travel roaring back in 2025, every dollar spent overseas is an import in the national accounts. This trend is inflating the MPM, especially as Australians flock to Japan and Europe.

• Infrastructure Projects: Large public investments—like new metro lines—can also boost imports if materials or specialised machinery are sourced internationally. However, government procurement policies increasingly favour local suppliers to reduce import leakage.

For small businesses, a high MPM means stiffer competition from global players. But it also offers opportunities to tap into global supply chains—if managed strategically.

Why Should You Care? Practical Implications for 2025

While MPM is a macroeconomic indicator, its effects ripple down to individual finances and business strategies:

• Budgeting: With imports absorbing more of household spending, keeping an eye on the exchange rate and global price trends can help you make smarter purchase decisions.

• Investment: Sectors exposed to high import competition—like electronics retail—may face tighter margins, while local manufacturers could benefit from government incentives.

• Policy Influence: As voters, understanding MPM helps Australians weigh the benefits of local content policies, import tariffs, and trade agreements.

In a world where your next online order could shape national statistics, the MPM is more than just an economist’s tool—it’s a window into how Australia earns, spends, and grows in an interconnected world.